Pensions bought under the Government's new PRSA scheme through brokers seem certain to be more expensive for consumers. Some providers are forcing brokers to charge extra to make money on the sale of even standard PRSAs, while others are providing higher commission products for sale through intermediaries.
The personal retirement savings accounts were designed to help increase the number of people with private pension provision from 50 per cent to 70 per cent. The key element was that they would be low cost and transparent. Charges on standard products were pegged at 5 per cent per contribution plus a 1 per cent annual management charge.
The scheme is designed to attract contributions as low as €300 per annum but some providers, including Irish Life, are refusing to pay commissions on contributions below €150 a month (€1,800 a year). Instead, it suggests that brokers charge customers an additional fee to transact the business.
Customers are also likely to pay more with Hibernian, which today unveils its range of PRSA products. It is offering three non-standard products that are identical in all respects except that they offer differing levels of commission. The difference between the three products is as much as 8 per cent of every contribution.
A spokesman for Hibernian said the products were designed to cater for the different business models of brokers - from fee-based intermediaries at one end to very small operators requiring higher margins at the other.
The company said that, traditionally, it would issue a product and allow brokers to set their own charges. This is not permitted under the rules governing PRSAs, although there is nothing to prevent brokers charging fees for the business in addition to the contribution and management charges.
The company said yesterday that it believed its approach was "more transparent" than some of its rivals. It pointed out that many brokers and their customers preferred to avoid upfront fees and just pay commission.
However, it may run into difficulties with the Irish Financial Services Regulatory Authority (IFSRA), which requires brokers to make recommendations on products purely in the interest of the consumer and to put the reasons for any recommendation down on paper.
A spokesman for IFSRA agreed that it was hard to see how a broker could stay within those rules and still recommend one product over an identical one on the grounds that it would earn the broker a larger commission.
The move to raise costs to customers, through additional arrangement fees or increased broker commissions, is also likely to trigger complaints to the Pensions Board, which licenses PRSA products.
Eagle Star, however, has introduced an online facility for the sale of standard PRSAs, allowing 1,300 brokers to cut costs and compete in the sale of the low-margin products.
